BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 1350 (Wolk) - Agricultural lands: greenhouse gases: Healthy Soils Program ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: May 10, 2016 |Policy Vote: E.Q. 6 - 0, AGRI. | | | 5 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 16, 2016 |Consultant: Narisha Bonakdar | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 1350 requires the California Department of Food and Agriculture (CDFA), in consultation with the Environmental Farming Scientific Advisory Panel (panel), to establish and oversee a Healthy Soils Program that provides incentives (i.e., loans and grants) and educational materials and outreach to farmers whose management practices contribute to healthful soils and result in net long-term on-farm greenhouse gas benefits. The bill also expands the panel from five to seven members and requires at least one member to have training and experience in on-farm management practices that reduce greenhouse gas emissions or sequester carbon. Fiscal Impact: Approximately $290,000 (Cost of Implementation Fund (COI) and GGRF) for the ARB to coordinate program development and implementation with CDFA, to develop quantification SB 1350 (Wolk) Page 1 of ? methodologies for eligible projects, and to evaluate the legal nexus and GHG reduction opportunities. Approximately $2.2 million (GGRF) annually for CDFA's staffing costs for program development and administration. Background:1) Agriculture and GHG reductions. According to ARB's 2014 Scoping Plan Update, agricultural sources in 2012 accounted for about eight percent of California's total GHG emissions, including methane (CH4), carbon dioxide (CO2), nitrous oxide (N2O), and black carbon. California's agricultural GHG emission inventory includes on-site emissions from animal enteric fermentation, manure management, rice cultivation, energy use (including fuel combustion), crop residue burning, and soil management practices, particularly fertilizer and manure applications. However, various agricultural practices can significantly reduce GHG emissions, and sequester carbon as well. GHG reduction and sequestration strategies in the agricultural sector include reduced energy usage through more efficient watering systems, such as drip irrigation; reduced nitrogen fertilizer usage; shifting tilling practices to improve soil carbon retention; changing livestock feed and practices to reduce livestock enteric rumination, manure management where manure is converted to alternative fuels; and establishing perennial vegetation on land retired from agriculture production to sequester carbon in the plants and soil. In addition, recent research also suggests that applications of compost may result in greater carbon sequestration in soils. Many of these land management practices to reduce or sequester GHGs also result in significant environmental cobenefits, such as improved water efficiency, improved air and water quality, and greater resiliency of agricultural land to climate change. Cap-and-trade auction revenue. Since November 2012, ARB has conducted 14 cap-and-trade auctions, generating over $4 billion in proceeds to the state. State law specifies that the auction revenues must be used to facilitate the achievement of GHG emissions reductions and SB 1350 (Wolk) Page 2 of ? outlines various categories of allowable expenditures. Statute further requires the Department of Finance, in consultation with ARB and any other relevant state agency, to develop a three-year investment plan for the auction proceeds, which are deposited in the GGRF. Legal consideration of cap-and-trade auction revenues. The 2012-13 Budget analysis of cap-and-trade auction revenue by the Legislative Analyst's Office noted that, based on an opinion from the Office of Legislative Counsel, the auction revenues should be considered mitigation fee revenues, and their use requires that a clear nexus exist between an activity for which a mitigation fee is used and the adverse effects related to the activity on which that fee is levied. Therefore, in order for their use to be valid as mitigation fees, revenues from the cap-and-trade auction must be used to mitigate GHG emissions or the harms caused by GHG emissions. In 2012, the California Chamber of Commerce filed a lawsuit against the ARB claiming that cap-and-trade auction revenues constitute illegal tax revenue. In November 2013, the superior court ruling declined to hold the auction a tax, concluding that it is more akin to a regulatory fee. In February of 2014, the plaintiffs filed an appeal with the 3rd District Court of Appeal in Sacramento. That case is currently pending. Healthy Soils Initiative and the budget. In his 2015-16 budget proposal, Governor Brown directed $10 million from the GGRF toward a new "Healthy Soils Initiative" to increase carbon in soil to improve soil health, agricultural productivity, soil water-holding capacity, and decreased sediment erosion. Governor Brown directed CDFA, under its existing authority provided by the Cannella Environmental Farming Act, to coordinate with other key agencies to work on several new initiatives. CDFA has since developed five action measures: protect and restore soil carbon; identify funding opportunities, including market development; provide research, education and technical support; increase governmental efficiencies to enhance soil health on public and private lands; and ensure interagency coordination and collaboration. However, no appropriations to CDFA for a "Healthy Soils" program were approved by the SB 1350 (Wolk) Page 3 of ? Legislature last year. Proposed Law: This bill: 1) Requires the Secretary of CDFA to appoint five members to the panel, bringing the total Panel membership to seven, and requires two of those members have at least five years of experience in agriculture and represent production agriculture. 2) Requires that at least one of the members appointed by the Secretary of CDFA have experience in on-farm management practices that reduce or sequester GHG emissions. 3) Requires ARB to consult with the Secretary of CDFA, and the Panel, for development of on-farm GHG emission reduction quantification methodology. 4) Allows CDFA, in consultation with the panel, to determine priorities for the program and give priority to projects that occur in and benefit disadvantaged communities, show promise of being replicable in other parts of the state, or provide environmental and agronomic cobenefits, such as improved air and water quality, improved crop yield, and reduced soil erosion. 5) Authorizes the panel to advise CDFA on scientific findings, program framework, guidelines, grower incentives, and providing technical assistance. 6) If CDFA elects to fund on-farm demonstration projects, requires CDFA, in consultation with the panel, to establish a technical advisory committee to review on-farm demonstration project applications for scientific validity and the proposed project's potential to achieve greenhouse gas benefits. SB 1350 (Wolk) Page 4 of ? 7) Requires CDFA, in consultation with the Panel, to implement a Healthy Soils Program to provide incentives, including loans, grants, research, and technical assistance or educational materials and outreach, to farmers whose management practices contribute to healthful soils and result in net long-term on-farm greenhouse gas benefits. 8) Requires CDFA to implement the program in accordance with funding guidelines and quantification methodologies developed by ARB. Staff Comments: Staff notes that there are multiple bills being considered by both houses of the Legislature that propose projects that would be eligible to receive GGRF funds. It is unclear how these bills will interact with each other. -- END --